Economic Outlook: Weill's regrets ... now?

By ANTHONY HALL, United Press International  |  July 26, 2012 at 10:48 AM
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Unlike Paul Volcker, Sanford Weill spoke up just a little too late.

Mr. Volcker is the former chairman of the U.S. Federal Reserve who lobbied, seemingly from his own private platform, for banks to end proprietary trading, which is fairly industry-specific jargon that can mean practically what anyone wants it to mean. Mostly, it is intended to mean a bank's separate investment activity from consumer deposits to keep those deposits safe.

Technically, Volcker had been appointed chairman of the President's Economic Recovery Advisory Board in February 2009. That was mostly considered an apologetic, after-the-fact position that kept Volcker in the shadows, but still acknowledged his expertise.

From there, Volcker pressed for the rule that has proven to be one of the more contentious provisions of the Dodd-Frank financial overhaul bill. Much of the friction comes from the practical side of the issue, because stopping banks from using depositor money in risky trading is like asking a chef to separate the salt and the pepper in a pot of stew. There are just so many flavors swirling around that nobody could possibly tell which one came from where. Similarly, separating one dollar from another in a modern investment firm that runs a retail bank is impractical at best.

We're talking about magicians with money. The Volcker Rule asks them to turn in their rigged up top hats and their flower-stuffed magic wands.

It could also be said the Volcker Rule is the like telling a bank to keep the funds in the left, front pocket of their trousers from the funds in the right, front pocket. The Glass-Steagall Act of 1933 went at the same problem different. The Glass-Steagall Act said, there must be two pairs of pants.

By 1999, there were so many smudges blurring the print of the Glass-Steagall Act, that it was repealed, allowing retail and investment banking to exist under one roof.

Sandy Weill's work as the chairman and chief executive officer of Citigroup Inc., pushed mergers so far that his deals alone were given credit as pushing the Glass-Steagall act into oblivion.

Then, this week, the retired champion of bank expansion spoke up. In an interview on CNBC, Weill said about the mega-banks, "What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that's not going to risk the taxpayer dollars, that's not too big to fail."

Nothing more than common sense supports the argument. "They can make some mistakes, but they'll have everything that clears with each other every single night so they can be mark-to-market," Weill said, using an accounting term that means the value of an asset is reconciled with the market value.

Simple stuff. Considering the financial meltdown, as if in a confession booth, "Mistakes were made," Weill said.

It often felt surreal to have the financial meltdown occur with big banks crashing to their knees and the economy turning on its heels and have the brotherhood of bankers remain bonded together in a code of denial. If the two-year debate of the Dodd-Frank bill, including the Volcker Rule, had included an understanding that no one would be prosecuted for prior misdeeds if they just stepped forward and sincerely discussed ways to improve the financial system, how many bankers would have stepped forward and said, "Mistakes were made?"

More than one?

Weill., in retirement, two years too late, has spoken up. Now banks are stuck with an enormously burdensome Dodd-Frank bill that in the main spells out regulatory improvements, but hauntingly misses the main point. Too big to fail is so easy to understand. Read the first two words. Banks are too big. They were when Weill retired. And after the forced mergers the meltdown provoked, they still are.

In international markets the Nikkei 225 index in Japan added 0.92 percent, while the Shanghai composite index in China fell 0.48 percent. The Hang Seng index in Hong Kong was flat, rising 0.08 percent, while the Sensex in India fell 1.22 percent.

The S&P/ASX 200 in Australia rose 0.58 percent.

In midday trading in Europe, the FTSE 100 index in Britain added 1.27 percent, while the DAX 30 in Germany added 1.96 percent. The CAC 40 in France surged 3.05 percent, while the Stoxx Europe 600 rose 2.04 percent.

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